Running a business is no mean feat, especially when it comes to managing your cash flow. To stay competitive and, more importantly, keep operations running smoothly, businesses must have an arsenal of risk management tools. One effective way businesses can stay proactive in managing financial risk is trade credit insurance. To give businesses greater insight into this financial tool, we’ve compiled a guide to trade credit insurance to ensure more informed decision-making in fast-paced industries.
What is trade credit insurance?
Trade credit insurance, also known as credit risk insurance or export credit insurance, is a risk management tool that protects businesses against financial loss should a customer default or fail to pay for goods or services. It acts as a financial safeguard, ensuring businesses maintain a healthy cash flow even when faced with non-payment.
The three benefits of investing in trade credit insurance
Embracing trade credit insurance as part of your business’s repertoire is a strategic way to keep your business running. However, before taking the plunge on any financial instrument, doing your research is essential. Let’s explore three major benefits of trade credit insurance below:
1. Minimise debt and manage risk One of the primary reasons businesses choose to invest in trade credit insurance is to safeguard themselves against bad debt and minimise risk. In the event of customer insolvency or default, the insurance coverage ensures that businesses receive compensation, minimising the financial impact on their operations.
Trade credit insurance also puts businesses in a better position to assess the creditworthiness of potential customers and remove the risk of trading with those that pose a higher risk of default.
2. Strengthen supplier relationshipsTrade credit insurance not only safeguards businesses against customer defaults but also plays a crucial role in strengthening relationships with suppliers. With the assurance of timely payment from insured receivables, businesses can negotiate more competitive payment terms with their suppliers.
This strengthened collaboration between businesses and suppliers can contribute to a more resilient supply chain, encouraging long-term and loyal partnerships that benefit all parties involved.
3. Greater financing opportunitiesHaving a credit insurance policy in place can improve a business’s creditworthiness in the eyes of lenders and financial institutions. In many cases, this insurance coverage acts as collateral, providing lenders with increased confidence in the business’s ability to manage risks associated with what they borrow.
A green credit profile can also lead to more advantageous financing terms, such as lower interest rates and increased access to capital. Businesses can leverage their credit insurance policy to secure financing for business goals like expansion or strategic investments, giving them ample financial freedom and flexibility.
So, how much does trade credit insurance cost? This will depend on many factors, such as the size and nature of your business, industry and the level of coverage you need. Typically, premiums can range from 0.1% to 1.5% of the insured sales turnover.
Access complete trade credit insurance solutions with Niche Trade Credit
For many businesses, credit trade insurance is non-negotiable, as it offers a layer of protection that goes beyond traditional risk management practices. By removing the stressors of incurring bad debt, businesses can redirect their focus to growing and expanding their business.
Niche Trade Credit (NTC) is your ally for safeguarding your business against potential financial pitfalls. We are a professional Australian specialist credit insurance brokerage company with more than 30 years of experience. We offer complete and tailored credit solutions to a wide range of businesses and are supported by our respected partners.
Learn more about our trade credit solutions by getting in touch with a Niche Trade Credit member today.